Gilead Sciences is a leading biopharmaceutical company. This Gilead Sciences Business Quality Report explains the Excellent Quality ranking that Gilead received under my quality ranking system. A full list of companies ranked by the quality of their business is available for exclusive access by DIY Investing members. Sign up here for the DIY Investing Membership program.
This Gilead Sciences’ Business Quality report is provided as a free sample of the type of information available for each and every company on my Quality Tier List. Only a small subset of Large Cap companies will be provided as free samples. The vast majority of companies, including the most lucrative opportunities in Small-Cap and Micro-Cap stocks, will be available exclusively for DIY Investing members.
Basic Company Information
- Company Name: Gilead Sciences, Inc.
- Ticker: GILD
- Quality Ranking: Excellent (5)
- Primary Reason: Patent Protection
- Size: Large-Cap
- Last Updated: 06/15/2018
- Patent protection guarantees pricing power.
- The industry leader in HIV drugs.
- An industry leader in HCV drugs.
- Ongoing diversification in oncology, inflammation, and liver diseases.
- Ability to expand/protect product line via acquisition or internal research.
Gilead’s Business Quality Description:
Gilead Sciences is an industry leading biopharmaceutical company. They research and produce drugs to treat and cure diseases.
This industry has a few key characteristics:
- Large research budgets which are generally expensed.
- Extremely high gross margins.
- Patent protections that can lead to a decade or more of pricing power on new drugs.
- Long-lead times on research. (10-15 years)
The large pharma companies (of which Gilead is one) tend to have a durability advantage over smaller companies. Clinical trials are extremely expensive and bringing a new drug to market requires extensive expertise. Thus, small companies either partner with or are bought out by large companies before their drugs reach the market. Consequently, large pharma companies tend to be “Excellent” quality because they have both reliable cash flows and a durability advantage. Small pharma companies lack both of these traits.
Ever since Gilead bought its way into the Hepatitis C business, they have secured themselves a place as one of the large pharma companies. They are currently attempting to diversify their revenue streams following the Pharma “model” or “rulebook” for durability. I believe they will be successful.
Why Gilead doesn’t deserve a higher quality rating
The next highest quality rating is “Generational Business” under my quality analysis framework. Gilead doesn’t deserve to receive this higher rating primarily due to a lack of long-term durability. Patent protection creates a durable competitive advantage in the marketplace. However, this durability comes with a time limit.
Once patent protection expires on its products, Gilead will have to deal with the full force of market competition in order to maintain profitability. Historically, pharmaceutical companies have struggled to maintain profitability in the face of generic competition. That is not to say that they start to lose money. However, loss of patent protection is marked by large drops in the level of profitability that a particular drug can earn.
Why Gilead doesn’t deserve a lower quality rating
The next lowest quality rating is a “High-Quality Business” under my quality analysis framework. The defining characteristic of a high-quality business is the presence of pricing power, without some sort of unassailable competitive advantage. In this case, the differentiating factor is again the patent protection on Gilead’s drugs. Patent protection is a key competitive advantage that simply forbids certain types of competition.
As long as Gilead is able to maintain patent protection on its key drug portfolio, they will continue to be an excellent quality business.